September 6, 2012

Makers and the law

I’m currently an L1 law student. We’re studying a few cases right now — International shoe v. washington state, and MnIntyre machinery v. Nicastro are two that I’ve recently read. I was thinking through the cases, and realized that these two cases mean something special for the maker community.

These cases are about jurisdiction — what states have the right to have their judgment bind. Many makers make and sell little robot kits, beams, rails, etc… This is “hobby” capitalism — they sell enough to fund their own fun and adventure, and not to make a real profit. Sometimes it becomes a business, but usually, it’s not. They make LLC’s or C Corps to limit liability, then transfer no assets or issue no stock. In effect, the LLC may not be shielding — but that’s not what I’m thinking about.

What I’m thinking about is what to do if you are sued. Since most makers are usually a person, having to defend a case in New York when you live in California may be an issue. How would you stop that from happening, while still selling everyplace?

Here’s where the answer and today’s Internet become a problem. The Court would likely treat Internet sales like they treat catalog sales — no distributor, no targetted ads, no suit. Whether or not Internet slaes for makers and catalog sales through sears are the same thing is another matter — there’s just no caselaw on it yet.

So, I think the following may be enough to keep jurisdiction either local to your state, or at least, arguable in federal court( where the system seems to more favor the producer than the consumer ).

1. Don’t target your ads to a state. No zip code targetting. If you do, that may be enough to show significant or frequent contacts.

2. Don’t enter distributorship agreements in a different state, especially consignment. If you enter a distributorship agreement, do so with an in-state distributor. Or at least with a distributor with an in-state presence. They can then sell the goods out of state, and more-over, won’t get you hauled to a far away court to defend a tort.

The entire idea seems to be — you can only be sued out of state if you advertise specifically to that state, if you generate a large volume of sales through that state, or if you ship large volumes of product to the state. It isn’t enough that people from that state buy — an occasional sale won’t do it( and occasional is a big questions. International shoe indicates that it may be in the millions and still be occasional. It seems to be as total % of your sales. ) It also isn’t enough if you sell to an in-state distributor, who then sells it far and wide( this is the farmer idea — a farmer in Florida shouldn’t defend a suit in Alaska. It works if there’s a distributor in Fla who exports the goods to Alaska, but it may fail if the distributor is in Alaska. . If our farmer sold all his fruit to a single distributor in Alaska, then there’s a good chance he’s gotta go to Alaska to defend a tort. )

Also — you’re always subject to jurisdiction where you are incorporated, and where your headquarters are. Be careful of this. Many people incorporate in Delaware. This means that anyone can go there and sue, and you always have to show up!

I’m not sure — I’m just a law student after all, and this isn’t legal advice. I think those two simple ideas( and really, easy to implement ), will keep jurisdiction in your state( or at least, make it something to argue about in federal court. ) So that, if you are sued, you can at least try the case near home.